#5 - ZIGUP - asset-backed value

This is #5 in our "Twelve Stocks of Christmas 2025" Series. You can review the full set here.

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The Pitch

ZIGUP (LON:ZIG) is the largest provider of van hire by fleet size in the UK, Ireland and Spain. It’s been in business under the Northgate rental brand since 1981, but the group expanded its remit in 2020 when it merged with the Redde claims management business – also previously listed on the LSE.

The benefits of combining these two businesses was never entirely clear. Zigup’s management now seem to have accepted this view and are restructuring the group into two separate operating businesses, focused on Rental and Repair. This should give the rental business the chance to shine, perhaps also flushing out any potential buyers for the Repair division.

With ZIGUP stock trading at a c.20% discount to book value and boasting a StockRank of 96, there's an opportunity for a re-rating if the company can deliver promised improvements in cash flow and profitability. In the meantime, the shares offer a well-supported 7% dividend yield, providing a nice total return opportunity.

The Big Picture

ZIGUP’s market leadership and deep sector expertise has made it a surprisingly reliable performer. The company controls the whole van rental value chain, from sourcing direct from suppliers through to retailing its own ex-fleet vans. In between, Northgate offers a range of hire and lease options that hit the sweet spot for the growing number of fleet operators who don’t want to own and manage their own vehicles.

The company has undoubtedly benefited from changing structural trends in vehicle ownership. Northgate had 135,000 vehicles on the road at the end of October 2025, with a book value of almost £1.7bn.

• Why this works: a large, well-run hire fleet can generate reliable cash flows and decent returns on capital employed. Northgate has a track record of doing this well and the company has been able to maintain or increase its dividend annually since 2012 (except 2020).

• The uplift: the supply chain disruption of 2022 provided profitable opportunities for Northgate, which was able to source new vans. But there was also significant disruption to the company’s normal fleet replacement cycles. These are now starting to normalise, providing an opportunity for improved cash flow and perhaps slightly higher returns on capital.

Going Deeper

At the time of writing, ZIGUP shares are trading at a 20% discount to their October 2025 net asset value of 480p per share. When a profitable business trades below its net asset value it’s always worth asking why – and whether there’s an opportunity for the gap to close.

In this case there are several possible reasons why a higher rating might become possible:

• Repair division: while rental accounts for the majority of ZIGUP’s profits, the repair division has a growing franchise with UK insurers and fleet managers who wish to outsource their claims management and repair operations. A large operator with well-invested facilities and an efficient courtesy hire fleet has the potential to generate attractive returns on capital.

• Split savings: management estimates that cost savings from separating the Rental and Repair businesses could total c.£20m per year by 2028 – equivalent to nearly 10% of current operating costs.

• Falling fleet capex: spending on fleet replacement is set to ease as the average age of the fleet normalises. Management says the business is approaching “an inflexion point” in terms of cash generation. Broker forecasts point to a sustained reduction in capex. The combination of lower spending and stronger cash generation could help ZIGUP cut debt and boost shareholder returns. A low average borrowing cost of 3.2% highlights the benefits of scale the business enjoys.

• Top end of expectations: ZIGUP delivered a 10.5% rise in vehicle hire revenue in H1 and recently reported a positive outlook for the remainder of FY26. Management has guided investors to expect underlying pre-tax profit to be “at least at the top of the range of analysts’ expectations”. In our experience, upgraded management guidance can be an early catalyst for a sustained re-rating.

What The Brokers Say

Brokers have an average rating of Buy on ZIGUP with a target price of 491p. That’s about 30% above current levels and broadly in line with the company’s book value. This suggests City analysts believe the stock has the potential to close the current discount to net asset value.

• FY26 forecasts (y/e April 2026) have remained stable this year and price the stock on an undemanding P/E of 7.5, at the time of writing.

• FY27 forecasts (y/e April 2027) were upgraded following the recent interim results. This suggests that analysts are confident in management guidance on cash generation and see a clear path to improved profitability.

The Bear Case

This is a cyclical and capital-intensive business that’s exposed to external economic conditions in the UK and Spain and relies on a significant level of debt.

• The profitability of this business may be limited by ZIGUP’s need to own a large rental fleet that operates against tough competition. Stockopedia data show return on capital employed of 7% for the last year. Arguably, returns at this level justify a slight discount to book value.

• Post-pandemic disruption to new vehicle supplies was a net benefit for ZIGUP. But the company’s economic exposure cuts both ways. Any weakness in demand or an increase in competitive pressures could lead to lower hire rates and falling residual values – both key elements of overall cash flows.

• The division between the Rental and Repair divisions means management focus is split across two largely unrelated businesses. Much effort has been invested in combining the two companies historically – now it seems that similar effort will be devoted to separating them. We might argue that this is not a positive reflection on the strategic insight of the Board.

The Bottom Line

ZIGUP has a long track record of market leadership that has perhaps been clouded by the complexities of the 2020 merger with Redde and the supply chain distortions seen in 2022.

The impact of both of these factors is now expected to ease, potentially creating a leaner and more cash-generative business. Delivering on this potential could drive the improved profitability needed to eliminate the current discount and support a valuation above book value.